A collection of wealth improvement articles

When you buy shares of a mutual fund, your money is pooled with other shareholders' money and invested in a portfolio of securities (stocks, bonds, etc.) An investment in a mutual fund offers you diversification and management by professionals.

Mutual funds have no guarantee of good returns or safety of your investment; they go up and down just like the rest of the market.

There are several different kinds of mutual funds, each with different investment objectives. If you decide to put your money into a mutual fund, you should look for one whose objectives match your own investment objectives and financial needs.

The different categories of mutual funds include these major classifications:

Aggressive growth or capital appreciation funds invest in smaller companies, looking for growth that will result in capital gains income rather than ordinary dividend and interest income. Because of their speculative nature, these funds are in the high risk category, giving you the chance of highest return as well.

Growth funds buy stocks that are expected to increase in value in the future. They are somewhat less risky than aggressive growth funds, produce very limited income, and are seeking long-term capital gain returns.

Income funds are those investing in securities to produce current income through dividends and interest, rather than long-term increase in value and capital gains.

Growth and income funds are aiming for both income and long-term growth. They invest in blue chip companies that pay reasonably good dividends and whose stock tends to increase in value over a period of time.

Bond funds are those that invest in corporate, municipal, and government bonds. Earnings are relatively steady. The value of the fund fluctuates inversely with market interest rates. There are bond funds that invest in tax-exempt municipal bonds, providing shareholders with tax-exempt income.

Some funds specialize in certain industries such as high technology, energy, health services, gold, etc.

Mutual funds are sold as "load funds" or "no-load" funds. A load is simply the sales commission, generally ranging from 5 to 8½%, that you pay when you buy mutual funds. A no-load fund has no sales commission. Some no-load funds charge "redemption fees" when you sell your shares. Before buying any mutual fund, be sure you understand how much you will be paying in sales commissions and various fees.

All mutual funds charge a yearly management fee, usually in the range of ½ to ¾% each year. You don't pay the fee separately; it's calculated into the return reported to you for each year.

Families of funds allow you to switch from one fund to another at no charge or for a very low charge. So if you buy a mutual fund from a company that has several mutual funds, you can switch from an aggressive growth fund to an income fund or from a high technology fund to an energy fund as your needs or market information dictates. Be aware that when you move money between funds, the IRS considers it a sale. As a result, you'll owe income tax on any gain unless shares are held inside a retirement account.

Speaking of taxes, every February, mutual funds send a Form 1099 to shareholders notifying them of the investment income that needs to be reported on their personal tax returns. Depending on the activities of your mutual fund during the year and on the type of investments it makes, you may need to report interest, dividend, and undistributed capital gain income.

Mutual funds, though they are managed by professionals, should be reviewed by the individual investor at least annually. The performance of the fund should be compared with the rest of the stock market and other funds.

If you'd like more information about mutual funds, request prospectuses of the funds in which you are interested. A prospectus will contain information on the investment goals, sales load, other fees, minimum investment requirements, and the fund's performance in the past.